Everything you Need to Know about Cryptocurrency & How it Works
Cryptocurrency is an encrypted decentralized form of digital currency which can be used for a variety of purpose like the medium of exchange, transferring between peers without any involvement of the third party. The mining process is executed with a confirmed public ledger using Blockchain technology.
In simple terms, the most basic definition of Cryptocurrency is that it is a machine generated currency known as a digital currency.
To understand how Cryptocurrency works, you’ll need to learn a few basic concepts regarding Cryptocurrency:
Public Ledgers:- Public ledgers are also commonly known as a Blockchain. All the transactions taking place are stored in a public ledger. The transaction is initiated when someone makes a request and is recognized instantly by the entire network of computers called nodes. These nodes are responsible to validate the transaction using a specific algorithm. Once the transaction is verified it becomes irreversible and permanent and is finally recorded in the public ledger.
Transaction:- Unlike any other monetary transaction the term transaction doesn’t convey the same meaning in term of Cryptocurrency. In the world of digital currency, the transfer of funds taking place between two digital wallets is known as a transaction. As mentioned above a successful transaction is added to the Blockchain.
Mining:- In simple terms Mining refers to a process to verify the transaction that has taken place within the network and then add them to the public ledger. The miners are the one who undertakes the task of mining. Those who confirm transactions by breaking cryptographic codes are called miners.
Now lets have a look at the entire process in a more graphical and easy to understand manner :-
How does Cryptocurrency work
The transactions take place between peers using specific software known as ‘Cryptocurrency Wallet’.
The transactions are encrypted and broadcasted to the entire Cryptocurrency network.
The transactions are then queued up and added to the public ledger system known as the Blockchain.
Cryptocurrency miners confirm the transaction to the digital ledger by solving cryptographic puzzles through a software in place. The entire process is known as Cryptocurrency Mining.
Once the transactions are successfully executed through the mining process they are added to the public ledger system — Blockchain.
Needless to say that the Blockchain technology streamlines the entire system such that the whole process is executed fairly and transparently!!